Investors are nursing losses of up to 9 per cent on Apple’s record-breaking $17bn bond offering, less than six weeks after the securities landed in their portfolios.

The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.

Apple sold $3bn of bonds maturing in 2043, locking in a low interest rate of 3.9 per cent for the next 30 years, but the market price of these bonds had fallen to 90.36 per cent of face value in late trading on Monday, according to Trace data.

Investors in the offering paid 99.418 per cent of face value for the new bonds, but institutional and retail demand was so high that they traded as high as 101.97 in the secondary market.

The debt sale was one of the most frenzied on Wall Street for many years and there were three times as many orders as there were bonds available. Issues by companies with high credit ratings have been among the hottest fixed-income investments because the interest they provide outstrips the meagre yield available on government securities.

Hmmm.. So-called "investors" need to look to the future, not the present, when deploying their capital. These so-called "investors" are definitely not subscribers to BoomBustBlog! Last month I posed the query, "Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In". After all, it had fallen over 40% from its recent all time high, a fall which I clearly told subscribers would come. This question is quite pertinent, both for Apple's long term viability and its short to medium term investors. Case in point, Apple's (rather astute) management saw it fit to lock in 3.9% 30 year funding rates. Kudos! A very smart move... For them! The buyers of these bonds (an offering that was 3x oversubscribed, may I add) obviously did not subscribe to BoomBustBlog. Let's count the reasons why such an offering was both ill timed, and ill priced.

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from the Market Realist site:

For those who don't subscribe and/or haven't already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers...

Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.

Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above. Here I demonstrated what more realistic numbers would look like in said model... image008image008image008

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipe out, or is it? On to page 10 of said subscription document...

Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related.

I'd like to add that I've ridiculed all of these stress tests, US and European, although the European stress tests were by far the biggest joke. Dexia passed with a grade of A (or so), and will be nationalized momentarily. 'Nuff said!

To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls,SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

Judged against these three requirements, Europe’s new plan is a miserly one. Its outlines emerged in a joint paper released on May 30th by France and Germany. The minimalism of the paper suggests the summit will offer little more than the establishment of single supervisor and a promise to set up a vaguely defined “resolution mechanism”.

If a pot of money is pledged it will probably be a small fund raised through a tax on banks and without the backing of governments. If Europe’s bail-out fund, the European Stability Mechanism (ESM), is referred to it is likely to be only as a last resort to recapitalise lenders after ailing countries have already bankrupted themselves standing behind their banks. A euro-wide deposit insurance fund is so controversial it isn’t polite to mention it.

...The legal challenges are also enormous. Each country in the euro has its own bankruptcy code. A change in the treaties governing the European Union would probably be needed to give a new resolution authority the power to seize bank assets and impose losses on creditors.

Events outside the negotiating room have also reshaped the scope of a banking union. The “bail-in” of Cypriot banks earlier this year dipped into the savings of uninsured depositors in order to recapitalise lenders. Repeating that tactic would risk deposit flight from peripheral banks and a sharp increase in banks’ funding costs. But rather than committing public funds to shore up banks elsewhere, some politicians would doubtless prefer to hit uninsured depositors again.

A strategy of incrementally moving towards a full banking union might have worked in normal times. Doing so in the middle of a crisis is risky. Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean. “It is madness to expose capital shortfalls if you don’t know where new capital is going to come from,” says one bank supervisor.

"Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean."

What's Samsung to do? Well, if you haven't realized it yet, Samsung management is highly astute. They shoved Apple a fat one, and don't think they will take Google's marginaliztion of their core revenue and profit drivers (now, smartphones) lying down. Of course, as I mentioned in the above-linked article, Samsung's margins are already slipping - even as its revenues and profits rise. This is a dangerous sign that Nokia, HTC, Blackberry and Apple ignored (and I warned years in advanced for the "fruit" companies - Blackberries, Apples & Fruit Borne Successitis). Apparently, someone at Samsung reads my blog, for they have decided to take the battle to the cloud to compete with Google.

How would they do such, you ask? Well, in order to compete with Google you'd need data... LOT's of DATA! Where in the world would Samsung get that much data, enough to compete with world's current shepherd of global data? Well, here's the crib notes answer. Samsung has sold over 220 million phones thus far. It has sold over 120 million "S" series smartphones (the higher end smart phones with extended capabilities) and about 20 million of its current high end flagship, the "S4". Each of these phones contain an array of sensors which measure and collect vast amounts of data about you and from around you. The higher end the phone, the more advanced and plentiful the sensors. Here's what last year's Samsung tech look liked...

phone sensors

That's a lot of stuff! Samsung is most assuredly gathering data through all of those little portals. Take a look at how many "what're you doing now, where, and how?" sensors are in its new flagship phone...

gs4hidden

They're probably going to be up to 125 to 150 million of these little privacy pits walking around by this time next year. Imagine the type of data that Samsung can amass in the cloud if it just executed with the slightest modicum of competence!!!

Google, the modern day master of the cloud is releasing a phone with even more sensors and more interactive intelligence. It was previously known as the Motorola X Phone, but is now called the Moto X. Gotta Be Mobile broke it down just as well as I would:

Google executives have been underplaying the potent power of Motorola Mobility’s X Phone, which has was recently referred to as the Moto X, but the device could signify trouble for dominant smartphone-makers Apple and Samsung.

You betcha!

The Price is Right

Google had aggressively priced its Nexus devices in the past to come with competitive specs and a very competitive price. And even with the Nexus devices, the specs may not be bleeding edge compared to rival flagships, but Google offered nice trade-offs with pricing and an unlocked strategy. Likely, the Moto X Phone will be priced aggressively and carrier subsidies will make Motorola a good bet for those looking to upgrade.

Hitting the Competition Where It Hurts

Where the X Phone really is important is its pricing strategy. Google has demonstrated that its Asus-made Nexus 7 tablet with a $200 price point could dominate the smaller form factor tablet market. With the X Phone, Google could deliver a better than decent phone experience and change the market.

Apple and Samsung, which are known to be the biggest winners in the smartphone industry and share the bulk of the market’s profits, will have to price their flagships down to compete against Google. Since the Nexus 7 debuted, Samsung’s Galaxy Tab series have seen prices dropping from when the slates first debuted.

For Samsung and other smartphone hardware companies, selling a product at or near cost may not make sense. For Google, this strategy is effective, as it doesn’t need to profit on hardware–it just wants to sell you another portal so that you’d want to use Google services. It’s like Gillette giving away free razors so you’ll buy the blades later, or HP handing away free printers so you’ll get the ink cartridges when you run out.

So on the surface, the Motorola X Phone may not wow you with its mid-range specs, but it will be an industry game changer where it matters: a good user experience with solid specs, pricing that’s affordable, a mainstream distribution strategy, and forcing industry pricing downward.

And my #MarginCompression thesis marches on into the mainstream!

Appealing to Your “Senses”

One area that Motorola’s new head Dennis Woodside had hinted to was a sensor network for Motorola’s future phone. Woodisde had stated that the company has been applying what it learned about always-on sensors and low power consumption as a result of the Motorola MOTO ACTV sports watch, and those battery-lengthening technologies could allow Motorola to construct a phone with more sensors.

motoactv-press-shotConsumers would benefit from graphs and analysis of the distance they walked or drove in any given day, the changing temperatures, and other information that embedded sensor networks may provide.

Google, on the other hand, could benefit if it could find meaning in the information it collects to improve its anticipatory Google Now search. It’s a win-win on both ends.

And given Google Now, a service, is a big draw to Android right now given how well it works in presenting data it learns about users in a meaningful way, the experience may be best experienced on a Motorola phone given the added sensors and data that Now could collect, process, and learn.

Just Plain Smart

At the end of the day, your smartphone experience isn’t about having the fastest and best specs on the market. It’s about the device being smarter, more agile and nimble to anticipate your needs and deliver you information as you need it.

And today, with cloud services, specs increasingly don’t matter on a phone. You no longer need a powerful phone to edit photos thanks to new Google photo and editing cloud services through Google+. As services move to the cloud, an entry level smartphone could become just as powerful as a high-end model, just with less cost.

Google is in a good position to start the next mobile revolution through its large Internet empire, and given the right pricing, the Motorola X Phone could be an invaluable, affordable gem that has the power to change the industry.

The open source OS paradigm calls for rapidly improving hardware specs at ever lower prices. I have pointed to evidence of this above, as these Asian OEMs produce ever better product at ever lower prices - just like the old school PC industry. This drives Google's info-centric business model which is why Google pushes free Android.

After years of outsourcing manufacturing tech and IP integration to low cost labor Asian countries, those countries have found a way to produce trinkets of their own. Of limited quality and value so you say? Well, remember the iPhone is a Chinese phone, through and through -at least Chinese built. So now you argue, it's American designed, just Chinese made! Please peruse the Oppo Finder 5, a phone that's drastically superior to the iPhone 5 in practically every single way, retailing for $100 less than the cheapest iPhone 5 made. Low cost, low margin products combined with Google's free OS will drive the price of hardware down to near zero, if not negative. Google even has its own hardware arm now (Motorola) to facilitate this downward march in margins and prices. Suppose Google decides to create best of breed Nexus devices and give them away just below cost? Imagine the best smartphone available in the world, unlocked, without a contract, for the cost of a single monthly wireless phone payment??? Google's Nexus program is acting as a training ground to teach Google's Motorola division to build best of breed! Google's biggest and most successful partner - Samsung, is an Asian company. Samsung Electronics of South Korea reported today that its quarterly profit jumped 76%, as its Galaxy smartphones beat rival Apple's iPhone in each quarter of 2012. What many seem to have missed is that EBITDA, Operating and Gross margins all slipped QonQ though. A sign of things to come??? Remember, Google benefits most when the barriers to access information are least. Reference "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!" as well as my videos below...

Samsung is also currently Google's biggest threat. This (soon to be combative) symbiotic relationship is akin to the relationship that Samsung had with Apple. Competitors, yet symbiotic partner/clients. Samsung and Google are poised to have a slugfest. Their relationship is similar to that of Samsung and Apple, with Samsung being the Apple in this case. Apple is highly reliant upon Samsung for memory and processor chips, and screens. Although Apple is the biggest Samsung client, it's by far not the only one and the Chinese manufacturers are up and coming.

TMO-Verizon-Head-to-Head Legal-approved FINAL-smallI received several letters in response to my Deadbeat Carrier Series. Here are a few, along with my responses to them.

Reggie, I found what I think are some flaws in your carrier monthly cost numbers in your "Deadbeat Carriers Compete" blog posting. First the biggest flaw is that the $70 T-Mobile plan does NOT include unlimited hot spot service. It only includes 500mb of hot spot service. You can read it on this link from T-Mobile.com. http://www.t-mobile.com/shop/plans/individual-plans.aspx I couldn't find the cost of 10gb of data including hot spot service but obviously it's going to be more than $70/month.

This is only a problem if you do not embrace Android as your default OS, and Android 4.2.2 is quite capable of doing so for over 85% of computer users. See the video below...

Second, where are you getting the costs for AT&T? I went to their website and they don't have minute plans that go up to 6000 minutes. Their individual plans are 450 minutes for $40, 900 minutes for $60 and unlimited minutes for $70 then you can add $20 for unlimited messaging. The data plans on the individual plans only go up to $50 for 5gb which includes hot spot service. They also have AT&T Mobile Share with unlimited talk and text plans which reduces the cost greatly from what you listed. Their 10gb mobile share plan costs $120/month and a single smartphone with that plan costs $30/month and you can use the hot spot service at that plan for no additional cost (I confirmed this with AT&T) so the total is $150/month (not $200 as you indicated).

AT&T has modified their pricing since I created the model, but the pricing has changed, not necessarily gotten cheaper. They effectively charge $10 per gigabyte for data, $70 for unlimited voice and $20 for unlimited texts. So 10 GB of data would be $100, and voice and text would be $90 combined - adding up to $190 before taxes, surcharges and fees which would add another nearly 20% on the price or roughly $220 total - as compared with T-Mobile whose package would be about $76 - all in (only sales tax is added in with pre-paid plans)! If one were to compare T-Mobile to the Mobile Share plan, there's still a big discrepancy for the reader forgot to include surcharges, fees and taxes - again another nearly 20% tacked on, so we're talking $180 per month, and that's just with 10 gigs of data use. If one were to use 40 gigs like me, then you'd add another $36 per month on that - or roughly $216 which is pretty much where we started in the first place.

Lastly, where are you getting the costs for Verizon? Again, they appear to be way off. Verizon's share everything plan with 10gb of data costs $100/month and then you add $40/month for single smartphone (with unlimited voice minutes and messages) and you can use the hot spot service at that plan for no additional cost so the total cost is $140/month (not $240/month as you indicated). I'm looking forward to your response. Thanks.

Again, the author is comparing family share plans to the single plan that was used in the model. Even so, Verizon pricing is far from a bargain. Let's look closely at the numbers he provided. Verizon is charging the same as AT&T, $10 per gig, but charging more for the handset service @ $40. If one where to use 40 gigs per month, that would be $400 per month plus $40 for the handset plus the nearly 20% in taxes, fees and surcharges - all told over $500 per month, compared to the flat $76 from T-Mobile. Even if you used half the data, your looking at about $280.

My next gift is your ability to generate your own chart with your own wasted wireless carrier dollar expenditures. Check it out..

As I said, deadbeat carriers. Here's some more mails...

Reggie, Good postings. One of the reasons why I'm switching off from AT&T very shortly and going to T-Mobile. They just have the same offerings for a LOT less. Isn't that what things were all about in the beginning before AT&T and Verizon slowly increased their prices and plans? On top of that one of the T-Mobile MVNO's, Solavei, has been on the market for just under a year now I believe and Solavei offers things for $49 "ünlimited." They're main offering is working it into a MLM/referral-based program where a few referrals can chop the bill to 0 or make a few bucks. Worst case it's good for a while before that program crashes possibly, then just jump back to T-Mobile (or other pre-paid style plans that offer nearly the same data and specs for less) Keep up the good work.

My current plan from EMT: €38/month for a family plan with 4 phones, 400 minutes (unlimited calling between the family phones), text, unlimited internet on 2 of the phones.

Additionally the country (Estonia) is pretty much 100% covered - you get high-speed internet in the thickest of forests from all of the carriers.

When comparing these plans with anything considered "normal" in the US ($300-$400 for a similar 4-person family plan from US Cellular with white areas in every valley between moderate hills), it's clear that there's a very, very long way for the US providers yet to go. It's simply amazing how much US customers are paying for the little amount of services they are actually getting!

All the best,

So, what does this all mean? Google's Android will become much more pervasive as Web access becomes cheaper. It also means that the Wintel duopoly is primed to potentially be toppled. Take note that Intel is now supporting Android and system makers are adopting it. Android is rich enough to replace windows for many, and believe it or not in this short period of it's exisitence I believe Android has surpassed Windows in active users. What happens when the power of Intel Core I7 chips are pushing Android? I'm sure Microsoft doesn't want to know!

The phrase captures a sentiment central to the cause of the English Civil War, as articulated by John Hampden who said “what an English King has no right to demand, an English subject has a right to refuse” in the Ship money case.

... The British Parliament had controlled colonial trade and taxed imports and exports since 1660.[1] By the 1760s, the Americans were being deprived of a historic right.[2] The English Bill of Rights 1689 had forbidden the imposition of taxes without the consent of Parliament. Since the colonists had no representation in Parliament, the taxes violated the guaranteed Rights of Englishmen.

...The phrase had been used for more than a generation in Ireland.[7][8] By 1765, the term was in use in Boston, and local politician James Otis was most famously associated with the phrase, "taxation without representation is tyranny."[9] In the course of the Revolutionary era (1750-1783), many arguments seeking to resolve the dispute surrounding Parliamentary sovereignty, self-governance, taxation, and the constitutional rights of 'commoners' to representation were pursued.[10]

Why go through this US grade school history lesson? Well, UK taxpayers have been paying substantial taxes to essentially bail out an Irish bank with no say so in how said bank is operated. As a matter of fact, they don't even know the extent of said bank's indebtedness despite paying a ton of money to bail it out. RBS investors have taken material losses due to this very same bank. Both of these parties went without adequate disclosure or... "representation". A couple of months ago I penned a piece titled "I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!" wherein the Royal Bank of Scotland's failure to adequately report the full (and quite excessive, in my opinion) liabilities of its ill-fated acquisition, Ulster Bank of Ireland. Ulster Bank pumped massive losses into RBS, who in turn neared collapsed and required a massive bailout by the UK taxpayer (billions of pounds massive), who still owns 81% of this sick creature as I type this missive. Those losses were generated by an Irish bank in Ireland, but paid by UK citizens, and the losses were materially understated in my opinion for Ulster Bank was/is much less solvent than RBS is letting on through its US SEC reporting, having encumbered all of its ECB eligible assets available for lending... ALL OF ITS ASSETS! See "I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!" for complete details, it's a doozy!

I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...

The app below allows the UK Taxpayer to calculate for themselves exactly what their individual contribution (pro rata) is to the government bailout of RBS.

I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!

A “radical” restructuring of Royal Bank of Scotland, which is largely owned by the UK taxpayer, could see it transfer control of its Irish operation, Ulster Bank, to the Irish government.

The future of RBS is currently being considered by the Parliamentary Commission on Banking Standards, and a draft report from the commission called for the split of RBS into a good bank and a bad bank.

However, a speculative report from BBC business editor Robert Peston has suggested that “another, more radical option is also being assessed by the Treasury”.

This would involve somehow removing Ulster Bank from RBS. The bank has been one of the worst performing parts of the group, with losses of £1 billion in 2012.

Mr Peston said that one idea raised is to “transfer Ulster Bank into the arms and ownership of the Irish government”, by swapping all or part of the bank for the British loans and investments currently owned by Ireland’s “bad bank”, the National Asset Management Agency (Nama).

Hundreds of thousands of Americans canceled their home Internet service last year, surveys suggest, taking advantage of the proliferation of Wi-Fi hot spots and fast new wireless networks that have made Web connections on smartphones and tablets ubiquitous.

Last year around 1% of U.S. households stopped paying for home Internet subscriptions and relied on wireless access instead, according to consumer surveys by Leichtman Research Group Inc. Just 0.4% of households in the last year canceled their pay-television subscriptions in favor of getting video entertainment over the Internet via services such as Hulu orNetflixNFLX -3.48%.

...Dropping home Internet service isn't a great deal for heavy Internet users, however. While smartphones are fine for email and social networking, wireless data plans can be expensive and easily drained by even a single streamed high-definition movie. Free Wi-Fi is more widely available than ever, but cutting the Internet cord means users have to rely on cellular access at home.

Still, frustrated by rising cable and Internet bills, some subscribers are testing whether their smartphones and free Wi-Fi might be good enough. Others, unable to afford both services, are having to make do without easy access to streaming video for entertainment and education, underscoring the persistent differences in how people of various economic levels go online.

...Right now, replacing home Internet with wireless doesn't make much economic sense for any but the lightest users, says Craig Moffett, an independent telecommunications analyst. Leading carriers Verizon Wireless and AT&T Inc.T -0.66% have installed high-speed networks, but the companies also are trying to make more money from Internet traffic by pushing plans that charge subscribers by how much data they use.

Well that's the leading carriers! Nobody forces you to do business with a carrier that overcharges for its services!

The broader wireless industry offers less-expensive options, including unlimited plans at Sprint Nextel Corp. S -0.96% and the T-Mobile US Inc., TMUS -2.05% although Verizon Wireless and AT&T have the most extensive networks at the highest speeds.

This simply isn't true, and I demonstrated such in the demise of the Deadbeat Carrier by actually measuring the speeds of both AT&T and T-mobile. T-Mobile speeds are quite compariable in real world situations.

"The way we think about it is, wire-line and wireless networks are going to coexist," says Mike Roudi, senior vice president for corporate development at Time Warner Cable Inc. TWC -1.20% "It would be hard for somebody to rationalize getting rid of their home connection and moving all of that traffic to a wireless rate plan."

Hey, I did it nearly a year ago. It's working out just fine for me!

Still, with average home Internet charges approaching $50 a month and typical low-end smartphone plans costing at least that much, many Americans can't or don't want to pay for both. Surveys suggest that those who have to make the choice are choosing smartphone service—which, after all, offers both voice and online access—instead of home Internet. Minorities and people with low incomes are far more likely than the average American to rely on their phones as their primary way to get online, the Pew Research Center found last year.

Leichtman Research surveys show that spending for home Internet service has risen steadily over the years, to an average of $46.78 a month last year from $28.46 in 2005. People trading up to faster services—from dial-up to DSL to cable to fiber-optic—accounts for some of the increase, but so do rising prices.

I've tested my my T-Mobile LTE/HSPA+ hypbrid connection against AT&T DSL, Verizon Fios fiber-optic and Verizon DSL and it blows the DSL services out of the water and is price competitive with Verizon fiber up to about 15 MBs. Again, see the demise of the Deadbeat Carrier.

For those who don't believe my, I come bearing gifts. First, pretty charts...

Reggie Middleotns Carrier Cost Comparison

My next gift is your ability to generate your own chart with your own wasted wireless carrier dollar expenditures. Check it out..

This time last year I took time to go into detail in regards to how Google is able to go about this...

Eariler this year, I delved even deeper into the details of how Google will cut the fat-margined companies (read as Apple, et. al.) off at the knees!

As coincidence would have it, Google management has now come out in public with affirmation of the business model that I have attributed to them these last few years, as reported today by the Financial Times on their front page.

Google is preparing an attack on Apple’s iPhone with a device that is more aware of its surroundings and smart enough to anticipate how it will be used next, according to the head of the internet company’s Motorola subsidiary.

The gadget, called the Moto X, will be made in the US and will be part of a campaign to drive down the cost of smartphones and end the high profit margins companies such as Apple have enjoyed, said Dennis Woodside, the Google executive installed to run Motorola after it was acquired in late 2011.

Mr Woodside’s comments, made at the D11 conference in southern California, marked the first official confirmation by Google that it would launch a “hero” phone, or flagship handset capable of competing with devices such as the iPhone and Samsung’s S4.

Mr Woodside hinted that the new handset would go on sale later this year and be priced well below the iPhone 5, adding that the sort of steep price declines seen in consumer electronics from personal computers to televisions were overdue in the smartphone market.

Without naming the iPhone directly, he said: “Those products earn 50 per cent margins. We don’t necessarily have those constraints. Those [margins] will not persist.”

... He added that Google was confident that the device, which will be “broadly distributed”, would be a big seller because “the experiences are unlike other experiences out there.”

This strategem employed by Google was visible at its onset and could have been mitigated had Apple been less greedy in terms of short term profits (it was one of the, if not the most profitable companies in the world) and gunned for ubiquitous distribution. You see, over time, every company's margins get cut. The pertinent question and the inflection point into the next paradigm centers around the next logical questions, "Will you be the one to cut your own margins or will you allow your competitors do it for you?"

As long as the market leader actively and religiously cuts its own margins it essentially trades incremental profit margin for incremental market share growth. From a long term cash flow perspective, it actually averages out to about the same. The problem is if you fail to cut margins often and early, you reap large cash flows in the beginning of the cycle to forgo them through margin compression towards the middle and end of the cycle, characterized by market share loss at the onst.

I've been using Blackberry as an example of this...

Blackberry market share vs margin correlation analysis

All of the former tech titans and market leaders have fallen the same way - Nokia, HTC, DEC, Polariod, etc.

Tim Cook was in the media yesterday weighing in on market share. It's as if he is in a delirium, that is if you believe his words, which I don't. He states that for Apple, quality is more important than quantity (or something of that sort). As per Endgadget:

Apple's head honcho Tim Cook is chatting up Android's growth explosion, and it turns out he's not flustered. "Do I look at that? Of course, I don't have my head stuck in the sand," said Cook." But for us, winning has never been about having the most." Instead, he stands by the old Apple line of quality versus quantity. "Arguably, we make the best PC, but we don't make the most," he added. "We made the best music player, and we wound up making the most -- but we didn't initially."

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

You see, my post yesterday clearly showed that the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

The has been the case with IBM, Nokia, Dell, HTC, Apple, Blackberry, etc. Mr. Cook, take the advice of Mr. Jobs if you don't wish to follow Mr. Middleton. I actually do believe that Cook understands these dynamics and is just putting on a dog and pony show for the media but his corporate actions don't bear this out. I strongly suggest they start spending that $174B cash horde on something other than massaging hedge funds.

So, does Mr. Cook's lack of adherence to Steve Jobs wisdom portend a potentially uber-successful company misunderstood by the markets (meaning time to buy stock) or is this the beginning of the end of an iconic corporate era?

I refer my subscribers to the research documents below for the answers...

Over the past few days, there has been a lot of noise in the tech media about the supremacy of "profit share" over "market share", specifically related to Apple's performance in the smartphone market (but it can be extended to Samsung as well). Most proponents of this argument seem to fundamentally misunderstand the long-term relevance of the "profit share" metric.

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

So,Apple's top management knew how this worked. I knew how this worked. What happened? Who the hell cares, a short is a short. Next up was the contrarian call of the decade, but it took very little intelligence and as much as I'd like to claim credit for being a genius... all you had to do was watch the trend.

Following up on the many emails, but not so many actual site comments from yesterday's post "Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars" I bring you hard evidence that there's about to be a massive disruption in the telecomm space. We're not just talking Google Fiber here. The smallest, most upstart of carriers has broken the holy grail and did away with multi-year, hardware subsidizing contracts while at the same time materially boosting its bandwidth, coverage and throughput. This means that the price-gouging competitors are going to fave that Apple thingy, #MarginCompression.

As states in yesterday's post, T-Mobile's subway experience delivers Verizon FiOS speeds via LTE. Well, T-Mobile must have read that post for they turned LTE on in Brooklyn and that's what I'm using to make this very article. It's very fast, very cheap, its opening in more places than many would have thought. What does this mean? It means prices will probably collapse across the board, you know... #MarginCompression. It ain't just Apple, RIMM and Nokia!

For those who don't believe my, I come bearing gifts. First, a pretty charts...

Reggie Middleotns Carrier Cost Comparison

Wait until people realize how much they are actually paying for those "free", subsidized phones... Then things will really get interesting...

Reggie Middleotns Carrier Subsidy Cost Comparison

My next gift is your ability to generate your own chart with your own wasted wireless carrier dollar expenditures. Check it out..

Of course, this doesn't look to good for Microsoft or Intel, for the Android camp is encroaching on the Wintel camp much faster than the Wintel camp is returning the favor.